IMPORTANT! I’m still ❗️MAX-AUM-BLOCKED❗️ even though I passed the exam, and my unblocking should be imminent. Copiers, please think twice before leaving the copy, as you won’t be able to re-enter. Prospective copiers, just follow me, and I’ll notify you when I’m unblocked.
I’m hoping there will be a lively and constructive discussion on this post and I will get the ball rolling with the poll at the bottom.
There has been a great deal of talk about the changes to the copy trading system. Some like it, some don’t. My impression is that the liking or disliking is linked to how actively one wishes to manage the copy trade. Those who embrace a totally passive approach tend to appreciate the change that gets them out of the nightmare of keeping the copy in sync, while those who like to intervene in the copied portfolio hate the loss of decision power that came with the old system.
Taking it as a fact that the new system is here to stay, and that fine-tuning on eToro’s part might or might not reintroduce some degree of flexibility, it appears to me that the best thing is to look at how it affects my portfolio and the way I run it, bearing in mind that, as I run most of my positions in the red, the objective is not to end up having the system close them to achieve the rebalancing of the copy.
There seem to be three circumstances worth looking at:
- What happens when copiers add money to the copy.
- What happens when copiers remove money from the copy.
- What happens when I withdraw/distribute the monthly earnings.
Each of these situations declines differently depending on the level of synchronisation of the copy with my portfolio and the amount of money involved.
We are therefore in a matrix of six different scenarios:
- Adding money when synchronised.
- Adding, when not synchronised, enough money to prevent sales.
- Adding, when not synchronised, not enough money to prevent sales.
- Withdrawing money.
- Me withdrawing/distributing when the copy is synchronised.
- Me withdrawing/distributing when the copy is not synchronised.
Let’s look at them in turn:
- Adding money when synchronised should not be a problem. The money will be allocated in the same proportions as the portfolio, no sales, no losses. When not synchronised sales should only be triggered if the added amount is not sufficient to provide for synchronisation. For example, if you have a portfolio in which you got rid of all the ETF and shares while keeping the $UK100 positions, you will have to add roughly 7% of your existing copy (we will call this RPI, as in Rebalancing Protection Intervention) to allow the system to allocate resources to the purchase of all those things you did not buy or sold manually. If you put in less than that, the system will sell some of the UK100 positions to make cash for the rebalancing.
- Withdrawing money will close positions whether you’re synchronised or not. Clearly, the damage will be far greater if you’re not synchronised as it will also sell extra positions to produce cash for a portfolio rebalancing.
- Me withdrawing/distributing money when you’re synchronised will have no impact as I’ll be reducing my available cash, and your dividend will, therefore, come out of your available cash, no sales necessary. It is not so if you’re not synchronised, as I suspect the withdrawal will trigger a rebalancing (but this I need to check).
There are three general considerations I need to add before I draw some conclusions:
- I’m in a long process of getting out of everything that is not UK100, a process that is made long by the fact that I do not like to close positions at a loss. When I complete this path, all these problems will become academic.
- Risky rebalancing only happens once, as when the copy is balanced, the system will take care of itself. The nefarious effects of the rebalancing can, however, be mitigated with the RPI described above.
- The withdrawal/dividend thing seems to me to be a good thing, more for you than for me, as it gives you the chance to get money out without a rebalancing being triggered. Naturally, if you’re already in sync, it offers you the opportunity to choose what to do with your money. I, however, am not wedded to it, and as it would be in my interest to grow my AUM without having to count on people putting the money back in, I could choose to stop the practice if there is a consensus that it is more hindrance than help.
In conclusion, I think that if you are happy with the way I run the portfolio, my best advice is to manually synchronise your copy with the portfolio and then continue enjoying passive monthly payouts.
For the time being, perhaps until the end of this discussion, I’ll hold on to the November dividend and perhaps bundle it together with December one. Is your copy synchronised with my portfolio?